Final Mile Delivery

Nigel Stapleton, Postcomm Chairman, said:
“When a market is being opened up to competition and there is one very dominant provider, the cost of access to the ‘final mile’ of that provider's network can be ‘make or break’. In this case, Royal Mail has asked Postcomm for permission to make changes that will reduce the margins available for the new ‘access’ operators. On the other hand, one of the largest of the new ‘access’ operators – TNT – has asked for changes that will increase what it claims to be too low a margin.
“In concluding this review, we will obviously study in great depth the rationale behind these markedly different requests. Although the postal market has been steadily liberalised over four years, with full market opening taking place just over 12 months ago, competition is still at an early stage, Royal Mail still delivers over 99 per cent of all letters over the ‘final mile’.
“The experience of other sectors such as telecoms showed the importance of ensuring new market entrants were not crushed under the weight of ‘access’ charges and Postcomm shall be similarly vigilant. All postal operators should be under no illusion about Postcomm's determination to ensure a level playing field for competition which is demonstrably the route to better quality, more innovative and more efficient mail services.”
Through its request, TNT has told Postcomm it believes that the current ‘access’ margin does not offer enough scope to enable it to make a long term investment and does not promote effective competition in the longer term. Royal Mail argues that it needs more flexibility to align its prices with its costs. It states the current regulatory control of ‘access’ margins restricts Royal Mail from passing on savings that it makes in the upstream part of its network to its retail customers without also passing on those savings to competitors through lower ‘access’ prices.
Notes for editors
A key feature of Postcomm’s initiatives for opening the UK postal market to competition has been enabling other mail operators ‘access’ to Royal Mail’s nationwide and six day per week delivery network. Typically, through these commercially negotiated ‘access’ agreements, new  entrants collect and sort mail from their customers and then give it to Royal Mail for delivery over the ‘final mile’. Royal Mail receives from the ‘access’ operator around 13p versus the typical retail price that they charge for an ‘end to end’ bulk mail letter which is around 18p.

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